What you should know before buying a Franchise Business

Purchasing a franchise is a common way to start a business. It allows one to operate a business under the brand of another. Although purchasing a franchise may seem like buying a business, there are some crucial distinctions that could impact on the long-term success of the venture. Below are some essential considerations:

Financial obligations

Apart from the franchise fees, other fees including royalties, marketing levies, equipment fees, stock, rent and refurbishment obligations may form part of the agreement.

The duration of the agreement

It is common for the duration to be a license for a limited timeframe. In this regard a pertinent aspect to consider is renewal rights.

The terms of the location and lease

Depending on the location of the franchise, there may be longer-term special conditions associated to the lease terms. For instance, rent reviews, refitting the rented space, new lease negotiation and/or relocation.

Business performance

It is important to ensure that the business will perform well in the future hence the franchisor is obliged to disclose information including contact details of former franchisees. It is advisable to gather as much information as possible to avoid underlying issues that could potentially affect the business.

New ideas or innovation

The introduction of new ideas and innovation such as the use of certain products, suppliers and advertising mediums depends on the agreement between the franchisor and franchisee.

Exit terms

A franchise agreement may contain exit terms before the franchise term expires. It is vital to check for penalties, special conditions and whether one will be restrained from working after the agreement expires.

If guarantors are required

A guarantor may be required to be personally responsible for the franchisee’s obligations. The liability may be limited depending on the circumstances.

There are also other considerations that should be accounted for, before purchasing a franchise business. For instances, the tax obligations, staff employment and leasing requirements.

If you are a franchisor or franchisee requiring advice relating to Franchise Agreements or purchasing a Franchise Business, Straits Lawyers are here to help. We are now offering online services in both English and Chinese.

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Please note that this article does not constitute legal advice and Straits Lawyers will not be legally responsible for any actions you take based on this article.